Australian entrepreneurship: A growth story?

On 16 February 2021, the Australian Bureau of Statistics (ABS) released its 2019-2020 Counts of Australian Businesses, including Entries and Exits.

I’ve analysed the ABS’ annual statistics, every year for the past three years, to better understand the trends impacting Australian businesses, the economy, and the way we live our lives.

We’d love to hear your thoughts and views on our analysis.

Key takeaways

From financial year end (FYE, 30 June) 2015 to FYE2020:

👉 Australia experienced 2.24% (301,169) growth in the net total number of businesses, from 2,121,235 to 2,422,404 businesses

👉 Non-employing businesses grew 3.14%, from 1,284,615 to 1,546,865 businesses

👉 Employing businesses grew 0.8% from 836,620 to 875,539 businesses

👉 Slowest growing sub-segment: Business with 1 – 4 FTE (0.5% growth)

👉 Fastest growing sub-segment: Business with 200+ FTE (2.7% growth)

👉 Sole proprietors grew 3.8%, the fastest growing business segment by legal entity type, from 549,833 to 687,571 businesses, while Partnerships declined 3.0%

👉 Businesses with zero to <$50K were the fastest-growing (4.2%) business type by turnover, while businesses with $50K to <$200K in turnover were the slowest (1.0%)

👉The top business category, in terms of growth in the number of businesses in the given business category, shifted from Financial and Insurance Services at FYE2016 to Transport, Postal, and Warehousing, the fastest-growing (7.8%) business segment, at FYE2020

👉The bottom business category, shifted from Mining at FYE2016 to Agricultural, Forestry, and Fishing, the fastest-declining (0.75%) business segment, at FYE2020

‍Note: percentages are based on 6-year compounded annual growth rate (CAGR), unless otherwise specified; Parpera analysis.

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Australian business growth

Australia has experienced 2.24% (301,169 new businesses) growth in the net total number of businesses, from 2,121,235 at financial year end (FYE, 30 June) 2015 to 2,422,404 at FYE2020.

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In FY2020, the net total number of Australian businesses grew by 1.96% (46,651 new businesses) from 2,375,753 businesses in the 2018-2019 period to 2,422,404 business in the 2019-2020 period.

Australian business composition by full-time equivalent (FTE) employees

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Over the period FYE2015 to FYE2020:

Non-employing businesses grew 3.14% , from 1,284,615 to 1,546,865 businesses.

Employing business growth slowed, delivering 0.8% growth (38,919) from 836,620 to 875,539 businesses, comprising:

👉 0.5% growth (16,943) from 584,744 to 601,687 in businesses with 1 – 4 FTE

👉 1.3% growth (16,062) from 197,164 to 213,226 in businesses with 5 – 19 FTE

👉 1.7% growth (5,264) from 197,164 to 213,226 in businesses with 20 – 199 FTE

👉 2.7% growth (650) from 3,717 to 4,367 in business with 200+ FTE‍

Australian business composition by legal entity type

Over the period FYE2015 to FYE2020:

👉 Companies grew 3.1% (15,611) from 770,574 to 926,686 businesses

👉 Sole proprietors grew 3.8% (137,738) from 549,833 to 687,571 businesses

👉 Partnerships declined 3.0% (47,304) from 287,320 to 240,016 businesses

👉 Trusts grew by 1.7% (54,762) from 513,014 to 567,776 businesses

👉 Public sector declined by 5.3% (139) from 494 to 355 businesses

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Australian business composition by annual turnover

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Over the period FYE2015 to FYE2020, business with an annual turnover of:

👉 Zero to less than $50k grew 4.2% (150,359) from 537,134 to 687,493 businesses

👉 $50K to less than $200K grew 1.0% (44,490) from 733,624 to 778,114 businesses

👉 $200K to less than $2m grew 1.8% (78,370) from 709,234 to 787,604 businesses

👉 $2m to less than $5m grew 3.0% (15,608) from 80,828 to 96,436 businesses

👉 $5m or more grew 3.2% (12,342) from 60,415 to 72,757 businesses

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Top 5 business segments by growth rate

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Over the period FYE2015 to FYE2020, the top 5 business categories, in terms of growth in the number of businesses in the given business category, shifted:

👉 From Financial and Insurance Services, which grew 4.8% over the year FYE2015–16 and slowed to 2.59% over FYE2019–20, with 2.69% 6-year CAGR, dropping from 1st to 8th in ranking

👉 To Transport, Postal, and Warehousing, grew 4.5% over the year FYE2015–16 and increased to 4.52% over FYE2019–20, with 7.77% 6-year CAGR, rising from 3rd to 1st in ranking

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At FYE2016, the bottom 5 business categories were:

• Public Administration and Safety, declining 0.07% over the year
• Manufacturing, declining 0.07% over the year
• Retail Trade, declining 0.85% over the year
• Agriculture, Forestry and Fishing, declining 1.48% over the year
• Mining, declining 2.62% over the year

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At FYE2020, the bottom 5 business categories were:

• Manufacturing, declining 0.23% over the year
• Mining, declining 0.41% over the year
• Agriculture, Forestry and Fishing, declining 1.02% over the year
• Public Administration and Safety, declining 1.43% over the year
• Information Media and Telecommunications, declining 3.53% over the year

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Over the period FYE2015 to FYE2020, the bottom 5 business categories, based a 6-year CAGR, were:

• Wholesale trade, growing 0.94% over the period
• Manufacturing, growing 0.44% over the period
• Retail Trade, growing 0.27% over the period
• Mining, declining 0.38% over the period
• Agriculture, Forestry and Fishing, declining 0.75% over the period

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Is Australian entrepreneurship a growth story?

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As with all strategic questions... it depends!

It’s pleasing to see continued growth in the net total of Australian businesses, despite the economic impacts of COVID-19.

We believe there's never been a better time to start a business as we work towards an economic recovery and change brings new opportunities, particularly for sole traders, freelancers and entrepreneurs.

For existing businesses - particularly small and medium sized employers - the data suggests that challenges could continue beyond COVID-19. As government subsidies are phased out and macro trends continue to apply pressure, businesses must re-invent themselves and embrace digital tools and channels to improve productivity, access new customers and markets, and achieve growth.

We observed a rise in non-employing businesses and believe this is driven by, but not limited to, several factors:

• Future of work trends: increased gig-economy, passion economy and “side-hustle” participation – this is supported by businesses with <$50K turnover demonstrating the fastest growth in businesses, by turn over
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• Decreasing rate of new employing businesses and stagnation of incomes, necessitating more people to turn to entrepreneurial opportunities to generate or supplement their income
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• Displacement of the labour force, as we transition from an old (oil driven) to new (data driven) economy, and technological changes and automation mandating changing demands on how, where, and when we apply our time and skills to generate value ("4th industrial revolution")
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• Increased ease of and support for starting a new business (government and technology) in response to macro trends

Additionally, we observed:

• “Small businesses are the backbone of the Australian economy”. However, while businesses with $50K in turnover are the fastest-growing business segment, the “hollowing out” of the lower business turnover bands ($50K to <$200K and $200K to $2m) is concerning. 65% (~1.6m) of all businesses sit in these bands and they present the slowest growing segment
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• The disparity between business types by turnover bands, suggests rising inequality in business ownership (and potentially in our society), as people are trending towards running either very small businesses (<$50K turnover, ~30% of businesses) or large businesses ($2m or more in turnover), which only make up 7% (169K) of the total Australian business population
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• There has been a clear and significant shift in the composition of businesses away from financial services, suggesting industry consolidation, and towards transport, postal, and warehousing, and healthcare – these trends are likely to accelerate due to the impacts of COVID-19
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• The bottom 5 business categories comprise, wholesale trade, manufacturing, retail trade, mining, agriculture, forestry and fishing were expected, as Australia increasingly remains a services based economy

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Key questions to be considered

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• What will be the impact of an increasing number of non-employing business owners on society and the way we think of work and structure and live our lives?
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• How can government policy markers and technology and financial service providers better evolve to support a more entrepreneurially driven society? – e.g. business financial services providers tend to focus on lending products. However, if 30% of business owners don’t make more than $50K annually, will they really be able to get the funding they need? And is funding what they really need?
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• How can we better support the business with 1 – 4 and 5 - 20 FTE to remain competitive and survive, while supporting smaller businesses to become more effective and grow from non-employing into the higher employing cohorts, thereby growing the economy and reducing unemployment?
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• As entrepreneurs how can we better facilitate the next generation of business, entrepreneurs and work force so that Australians can all prosper in the new economy and not be left behind?

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Thank you for reading! We’d love to hear your thoughts and views on our analysis.

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Thank you!

Daniel Cannizzaro

Parpera
Better money, for businesses
Better money, for everyone.